Applying New Proportionality Requirements, Court Grants Motion to Compel and Orders Production of Unredacted Tax Returns and Financial Statements

In this patent infringement action, Slide Fire Solutions, LP (“Slide Fire”) moved to compel discovery responses from Bump Fire Systems (“Bump Fire”). Bump Fire also requested a protective order to prevent the disclosure of certain discovery, including sensitive trade secrets and financial information.

With respect to the financial information, the court analyzed the motion to compel under the new proportionality standards set for in Fed.R.Civ.P. 26: The party seeking discovery, to prevail on a motion to compel or resist a motion for protective order, may well need to make its own showing of many or all of the proportionality factors, including the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, and the importance of the discovery in resolving the issues, in opposition to the resisting party’s showing. And the party seeking discovery is required to comply with Rule 26(b)(1)’s proportionality limits on discovery requests; is subject to Rule 26(g)(1)’s requirement to certify “that to the best of the person’s knowledge, information, and belief formed after a reasonable inquiry: … (B) with respect to a discovery request…, it is: (i) consistent with these rules and warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law, or for establishing new law; (ii) not interposed for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; and (iii) neither unreasonable nor unduly burdensome or expensive, considering the needs of the case, prior discovery in the case, the amount in controversy, and the importance of the issues at stake in the action”; and faces Rule 26(g)(3) sanctions “[i]f a certification violates this rule without substantial justification.” FED. R. CIV. P. 26(g)(1)(B), 26(g)(3); see generally Heller v. City of Dallas, 303 F.R.D. 466, 475-77, 493¬95 (N.D. Tex. 2014).
The court noted, however, that the “amendments to Rule 26(b) and Rule 26(c)(1) do not alter the basic allocation of the burden on the party resisting discovery to – in order to prevail on a motion for protective order or successfully resist a motion to compel – specifically object and show that the requested discovery does not fall within Rule 26(b)(1)’s scope of relevance (as now amended) or that a discovery request would impose an undue burden or expense or is otherwise objectionable or properly subject to a protective order. See McLeod, 894 F.2d at 1485; Heller, 303 F.R.D. at 483-93.”

With this understanding, the court granted the motion to compel, ordering that Defendant must produce “information reflecting the account numbers of its accounts with banks and financial institutions used for Defendant’s business purposes. Considering the importance of the issues at stake in the action, the parties’ relative access to relevant information, and the importance of the discovery in resolving the issues, including Plaintiff’s asserted need to conduct third-party discovery as to damages, and where Defendant’s counsel reported that Defendant’s financial accounting is accomplished in part through its account statements from banks and financial institutions, the Court finds that this discovery is relevant to Plaintiff’s claims, including its damages analyses, and proportional to the needs of the case. Again, any confidentiality concerns can be addressed by utilizing the mechanisms established by the Court’s Protective Order.”

The court also granted the motion with respect to the Defendant’s tax returns, finding that the discovery was appropriate under the new standards articulated in Fed.R.Civ.P. 26. Defendant must produce “unredacted copies of its annual federal and state tax returns – including any returns as to Florida sales tax – since 2013. Considering the importance of the issues at stake in the action, the parties’ relative access to relevant information, and the importance of the discovery in resolving the issues, including Plaintiff’s damages analyses and asserted need to conduct third-party discovery, and where Defendant’s counsel reported that Defendant’s financial accounting is accomplished in part through its tax returns, the Court finds that this discovery is relevant to Plaintiff’s claims, including its damages analyses, and proportional to the needs of the case. Again, any confidentiality concerns can be addressed by utilizing the mechanisms established by the Court’s Protective Order.”

Finally, the court turned to the issue of Plaintiff’s request for an award of its reasonable expenses, including attorneys’ fees, under Rules 37(a)(5)(A). Rule 37(a)(5)(A) provides that, if a motion to compel is granted, or if the requested discovery is provided after the motion was filed, “the court must, after giving an opportunity to be heard, require the party … whose conduct necessitated the motion, the party or attorney advising that conduct, or both to pay the movant’s reasonable expenses incurred in making the motion, including attorney’s fees,” except that “the court must not order this payment if: (i) the movant filed the motion before attempting in good faith to obtain the disclosure or discovery without court action; (ii) the opposing party’s nondisclosure, response, or objection was substantially justified; or (iii) other circumstances make an award of expenses unjust.” FED. R. CIV. P. 37(a)(5)(A). And Rule 37(a)(5)(C) provides that, “[i]f the motion is granted in part and denied in part, the court may issue any protective order authorized under Rule 26(c) and may, after giving an opportunity to be heard, apportion the reasonable expenses for the motion.” FED. R. CIV. P. 37(a)(5)(C).

The court then granted “Defendant until February 29, 2016 to file a response to this order to explain why the Court should not require Defendant Bump Fire Systems, LLC and/or its counsel to pay Plaintiff Slide Fire Solutions, LP, as required by Rule 37(a)(5), the expenses, including attorneys’ fees, that Plaintiff incurred in making its motions to compel Defendant’s responses to requests for production and answers to interrogatories.”

Stan Gibson, an experienced technology and IP trial lawyer, represents inventors, manufacturers, owners and others in litigation centering on complicated technology. Stan's practice is national in scope and he represents both plaintiffs and defendants and has litigated dozens of cases on behalf of his clients, taking many of them to trial. Although most cases settle, Stan's ability to take cases to trial enhances their value and drives favorable verdicts and settlements. Contact him at 310.201.3548 or SGibson@jmbm.com.

Greg Cordrey, an experienced patent litigator and former flight test engineer, represents a wide range of industries including medical device, computer, e-commerce, semiconductor, automotive, aircraft, and consumer products. He has litigated patent cases nationwide and has practiced before the Federal Circuit and the U.S. Patent and Trademark office as a registered patent attorney with experience in concurrent litigation and patent reexamination proceedings. Greg is recognized as one of the "Best Lawyers in America" in IP Law, as well as a "Super Lawyer" and "Rising Star." Contact him at 949.623.7236 or GCordrey@jmbm.com.

Rod Berman is recognized by the Daily Journal as one of the top 30 intellectual property attorneys in the State of California, and by the Los Angeles Business Journal as one of the top 100 attorneys in Los Angeles. Rod's practice focuses on patent, trademark, copyright, unfair competition and internet responsibilities and includes counseling, litigation, opinions, licensing and prosecution. In addition to being a registered patent attorney, Rod is a court-recognized expert in patent and trademark law, and has successfully argued before the Federal Circuit. Contact Rod at 310.201.3517 or RBerman@jmbm.com.

Andrew Shadoff, is a litigation associate who has assisted in prosecuting and defending patent infringement lawsuits involving mechanical devices. He has drafted successful summary judgment motions and pretrial motions in limine, and has assisted with trial and witness preparation. Contact him at 310.712.6856 or AShadoff@jmbm.com.

Joe Mellema's practice focuses on litigation in federal and state courts, including the protection and enforcement of intellectual property rights, and business and commercial disputes. He has handled patent, trademark, copyright, trade secret, unfair business practices, antitrust, and business and commercial lawsuits in all phases of litigation and arbitration. In addition to a law degree, he has dual degrees in electrical engineering and physical sciences, and was formerly a systems engineer at Raytheon Company. Contact him at 949.623.7232 or at JMellema@jmbm.com.

Rachel Capoccia

Rachel Capoccia focuses on technology-based litigation and counseling, with an emphasis on patent litigation, copyright litigation and other technology-related matters. Her legal experience is complemented by 10 years working at IBM as a software engineer before law school, during which she led a team of engineers who developed computer graphics software and computer aided design systems. She represents clients in all phases of patent infringement matters involving diverse areas of technology. Contact Rachel at 310.201.3521 or RCapoccia@jmbm.com.

Jessica Newman is a litigation associate, and a member of JMBM's Patent Litigation Group. She is involved in all aspects of litigation and has assisted in representing clients in a variety of industries with regards to patent infringement and copyright infringement issues. Contact her at 310.785.5372 or JNewman@jmbm.com.